Goldman Comment Seeks Balance
The comment letter from James A. McNamara, Managing Director, President, Goldman Sachs Mutual Funds and David Fishman, Managing Director, Co-Head of Global Liquidity Management, Goldman Sachs Asset Management says, "GSAM appreciates the Commission's view that additional reforms are needed to enhance the stability of money funds and to mitigate systemic risks. We share the Commission's concerns that one money fund's problems may cause serious problems for other money funds, their shareholders, the short-term funding markets and the broader financial markets and economy. In considering changes to the regulatory environment in which money funds operate, we urge that the Commission seek a balanced approach that permits some appropriate risk taking by money funds and that facilitates private and public borrowers' access to term financing in the short-term markets.... In addition, we urge the Commission to be attentive to the potential unintended consequences of rules it may adopt. If the Commission were to solve one problem and inadvertently create another, more serious problem, its goals will not be achieved and neither investors nor the markets would be well served. As discussed below, we are concerned that some elements of the Commission's Proposals could have just that effect. These comments reflect our underlying view that there is no perfect solution for money funds that eliminates all risk to investors and to the financial system. Indeed, wringing the last bit of risk out of an investment in money funds, as with any investment product, also would likely wring out the last bit of its economic value. For example, if prime money funds yield less than government money funds as a consequence of regulatory restrictions, there would be no economic purpose for prime money funds, thus eliminating an important source of short-term financing for many highly creditworthy companies. While investors have expressed differing preferences between stability and liquidity, they have consistently told us that a combination of Alternative I and Alternative 2 could render money funds unworkable for most, if not all of them, since the combination effectively would mean that money funds offer neither stability nor liquidity (nor, in current market conditions, yield). Without preserving one or both of the priorities of money fund investors, the combination, in our view, would lead to a mass exodus from money funds into alternative products."
